Financial Facts: Condo or condotel?

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Years ago when I moved to the High Country, I was exposed to a few new words. Boarding and gapers were easy to understand, apres-ski was a bit confusing and then there was condotel.

What is a condotel? I have lodged in a condo, but a condotel, is this some new form of European hostel? I really did not know for sure.

Then I gravitated into the wonderful world of mortgage lending and right off the bat I was thrown into the world of having to know the difference between a condo and a condotel.

So here is a way for you to know the difference between a condo and condotel and why you should store this information in back of your brain.

A condo, or condominium, is a defined residential unit in a complex of residential units where the unit is held in full ownership by an individual or individuals and where the common grounds are owner-in-joint with all other unit owners. This type of unit is by far the most common here in the High Country.

A condotel unit is also defined as a residential unit in a complex of residential units where the unit is held in full ownership by an individual or individuals and where the common grounds are owner-in-joint with all other unit owners. But here is the difference: condotel units have shared services such as a front desk like one you would see at a hotel or motel. They may have daily maid service and a central phone service or concierge service available on site. Owning a condotel unit is much like owning a room in the local Holiday Inn or Best Western motel.

And now why the distinction and what difference it makes to a mortgage lender. Typically, mortgage lenders consider a condotel unit solely as an investment property, even if you as the owner do not rent it short-term or long-term. Usually the industry's standard underwriting guideline view condotel units as heavily used units and of higher risk for late payments. The higher the risk, the higher the mortgage interest rates you may see when buying or refinancing such a unit.

So what is a better investment? Condo or a condotel? There are no clear-cut rules as you may receive a lower interest rate on a condo, but your rental figures may be less. If you own a condotel unit you may have higher incomes generated from the rentals, but the cost to maintain the unit may be higher.

My recommendation is to be acquainted with both types of units and to understand the pros and cons of each prior to making that offer.

For answers to your mortgage related questions call Bob Kieber at (970) 453-4700 or email him at rkieber@centennialbanking.com. Bob is a local mortgage lender with Centennial Bank. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country. Member FDIC, Equal Housing Lender. NMLS Bank #401640 Broker #289610. For tax benefit information please consult with a professional tax advisor. The opinions expressed are those of the individual, and do not necessarily reflect those of Centennial Bank.